Kincora Copper will shortly be making some big decisions in Mongolia
The opportunities for miners in Mongolia can be immense, as Kincora Copper’s (CVE:KCC) Sam Spring knows only too well.
He’s been on the ground working Kincora’s Bronze Fox copper property for some years now, always in the shadow of the giant Oyu Tolgoi copper project.
Oyu Tolgoi alone, says Spring, looks set to account for around a third of the Mongolian economy.
That’s a huge impact for one project to have, and it’s hardly surprising that at some points the country’s government organisations have struggled to come up with a coherent and consistent policy towards mining, and controlling economic growth and inflation.
Oyu Tolgoi itself has suffered problems at the political level, as joint owners Rio Tinto and the Mongolian government squabbled over budgeting and approvals.
And Kincora too has had to fight its corner, following the unexpected revocation of rights over two licenses adjacent to its flagship Bronze Fox project that led to a C$7 mln impairment to the company’s 2013 accounts.
“It’s been a real rollercoaster,” says Spring, speaking on the phone from Ulan Bator.
“I walked into a bit of a hospital pass when I took over as chief executive with a dispute with the government and various negative bits of legislation put in place at the time.
“Fortunately, these mistakes have more or less been realised and actions either taken or proposed to win back investors.”
Sentiment towards Kincora and towards Mongolia was severely dented.
Initially, though the company was undaunted.
“We drilled 10,000 metres last year,” says Spring. “But we couldn’t drill where we previously had the best drill results because of the licence dispute.”
Consequently, the results that came in, although respectable, were not, says Spring, “standout” as needed in the current market for exploration plays.
With that in mind, and with disputes about Oyu Tolgoi rumbling in the background, it was then deemed prudent to scale back activities somewhat.
“After last year’s field season we decided we wouldn’t do any serious exploration until we got our disputed licences back, Oyu Tolgoi got resolved or the general exploration market improved,” says Spring.
But, 2015 has been an eventful year in Mongolia. The government has now settled its differences with Rio Tinto at Oyu Tolgoi, and also resolved its licence dispute with Kincora.
That leaves a clear path open for activities on the ground to restart in a major way, although precisely what form that resumption of activity will take remains to be seen.
“We’ve got some good targets that in normal conditions would be easy to fund,” says Spring.
But he notes that recent exploration success from near neighbours Xanadu Mines (AXS:XAM) was actually met with share price weakness as investors took the opportunity to sell into good news.
At the same time, the exploration potential in the South Gobi desert, where Kincora’s ground lies within 140 kilometres of Oyu Tolgoi and 40 kilometres from Tsagaan Suvarga, another US$1bn plus greenfield copper porphyry construction project, is just too huge to be ignored.
“There are not too many areas in the world with the copper potential of the South Gobi and it is a relatively favourable jurisdiction compared to other copper frontiers such as the DRC or highlands in PNG,” says Spring.
“It’s comparable to Chile in the 1970s from an unknown geological and project development perspective with the region’s potential finally opening up following recent legislative change. If we find one or two of these copper porphyrys then it’s a game changer.”
He also expects that Mongolia will return to investors’ radars relatively quickly once Stage 2 construction recommences at Oyu Tolgoi.
“The biggest project in the history of the country was stuck for three years,” he says.
“But Mongolia’s back on the watch list and as the government even says, “Mongolia is open for Business (again)”. If Oyu Tolgoi happens the way it should then we’ll see world-leading growth rates coming through from the country.”
That’s not a bad environment in which to be cranking up an exploration programme. At the end of the last quarter the company had C$1.6 mln in the bank.
“That,” says Spring, “is enough to go out and do some more exploration. It’s not a huge amount when it comes to a drilling programme, but we probably could push the boat out and do some drilling on our cash reserves but the general market remains challenging. There’ll be a decision in the next couple of weeks.”
Key shareholders will be allowed their say, but there will be strong arguments that the potential rewards now outweigh the risks.